If the Law of Proportionality has any say in the matter it is a Depression not a Recession that is in store for us. Time will tell. One thing is for certain: The smoke, mirrors, head fakes, blame game, up is down, down is up, don’t believe your lying eyes chicanery will continue. These are the times that try men’s souls.
I know about the commercial RE defaults that you mention but what about the rest of the story? These are major RE developers with large reputations and many other assets and a default is not a simple matter and only starts a process and these are for large amounts of debt.
Did they just stop payments or did they give title back to their lenders? Were there some loan guarantees in place or other collateral that will be called upon? Are the lender's going to foreclose? If so, will there be law suits against these major players for losses incurred and then what will be the impact on their reputations and credit worthiness and on the overall RE market? It gets complicated but these issues are most important and relevant and will really tell us the rest of the story and the true impact of these events (and we generally do not hear much about these details and how they get resolved).
A really great article! I see that no one is held accountable for anything any more. Broken laws, bank failure, outright theft, killing in self-defense, lying to the American people, more lying to the American people, leaving people on the tarmac in a military blunder of gigantic proportions and being (proud) of it? We used to live in a place where every one is held accountable for their mistakes. Now we kill, lie, steal, attack, destroy, give money to foreign governments and no one is responsible. Getting whacked may be the least of our worries! Just sayin'
you said "A recession in the housing market would make it a lot easier for people to keep a roof over their heads." How does that work for folks that are already in a house ... especially for those that bought a house in the last 5 years (or worse yet, in the past 5 months). A recession and the related drawback in housing prices gives home owners less equity, and may imperil their jobs, causing a world of financial hurt when they are forced to sell their house for a low less than they paid for it.
Hey Skip. That is called capitalism. I am certain that every American that is a homeowner has a nice reserve I would think about $50,000 for the average house would be sufficient. When they get laid off or their house cruise down in value, they can use the reserve they possess to keep themselves solvent. Problem solved. By the way, if you don’t have that reserve, you should not be a homeowner.
And as Bill has pointed out numerous times, these ridiculously-low interest rates and faux money have greatly undermined the practice of “due diligence” by private businesses and government. I just read a Town and Country magazine article about JPMorgan Chase paying a young, fairly-recent Wharton School grad $175M for a service that the venerable bank now alleges is a scam. (Another higher-ed scandal; this time not involving Hollywood stars.)
So are we and our children ready for a recession . . . or a depression?
How to prepare?
I was taught to prepare for hard times by having a supply of basic, basic foods for 12-24 months ahead (wheat and a simple grinder, sugar, salt, lots of healthy oils and fats, favorite spices, etc. A few hundred dollars worth stored in cool, dark places.) Avoid debt like the plague, and try to own a home that we could afford without mortgage. A cash reserve enough for several months or a year, and where possible fuel. Grow as much of our own food as a family can where they live.
Did I always have all of that? Take a guess . . . but we always have had much of it.
It's the best and cheapest insurance I have ever had.
The only default I've ever had the pleasure of causing was directed at a small local bank. The apartment building was purchased with 5 year financing at 7% interest. Within commercial financing one is required to seek a new loan every 5 years. When the time came it was 2007 there was no financing from this bank or any other. To the market the building was for all intents and purposes of no value. My solution in the borrower friendly State of PA was to continue to collect the rent and pay the note and ignore the lenders demands to pay the note in full. Their response was to file a foreclosure action prompting me to stop paying the loan, taxes, water and gas bills. Philadelphia owns both the water and gas untiles and will not shut of either it the building is occupied. Both bills become municipal liens on the deed. Philadelphia is very slow to foreclose on delinquent taxes sometimes taking up to 5 years.
With the slightest adjustments the process of foreclosure can be stalled for quite some time, the courts were clogged with all manner of issues.
In the end the lender had a change of heart providing 6% financing for an additional 5 years. Just long enough for George Bush to bail out the lenders who caused the RE bubble in the first place.
I'm not totally reckless all monies collected were directed into a savings account. The good thing about Philly, they will wave late fees and penalties on delinquent accounts including RE taxes in some cases.
Not everyone has a $50k cash reserve after buying a house. I now I didn't after my first house. and my second, and my third (where I lost $75k on what was a $250K house until it wasn't. But I rented for a couple of years, built bak up enough cash to buy my next house, and was lucky enough from that point forward to come out even or ahead on future homes.
"Risks increase with time. So, normally, the interest rate you pay when you borrow for a long time is higher than for a short-term loan. And when the two are reversed, it is a signal that something is out-of-whack."
I thought at first he was talking about what I saw a few months ago. On a mortgage broker's website, that was quoting residential mortgage prices from different big banks up here in Canada. If you look closely, mortgage rates for variable mortgages are more expensive than fixed long term mortgages. Just the opposite of what you think they should be. Check this out in your own area.
And then I saw he was talking about the US Treasury Yield curve. And not fixed vs variable residential mortgage rates.
The use of borrowed money has a cost. If you are a market guru too bad, LaLa land is gone. Reality is setting in. Live with it. Money costs money! Be quiet if you want to uphold your reputation and learn from this experience, shut up and learn. We all hope the disaster will be livable.
I'm confused. Is Bill Bonner's daily posts only for paid subscribers or is it public and can be shared freely? There are conflicting messages at the end of today's post.
Daily posts by Bill are public. It's the special posts by Dan Denning, Tom Dyson and Joel Bowman that give out specific financial information that are the paid part. Though even those gentlemen sometimes post Public writings as well.
If the Law of Proportionality has any say in the matter it is a Depression not a Recession that is in store for us. Time will tell. One thing is for certain: The smoke, mirrors, head fakes, blame game, up is down, down is up, don’t believe your lying eyes chicanery will continue. These are the times that try men’s souls.
I know about the commercial RE defaults that you mention but what about the rest of the story? These are major RE developers with large reputations and many other assets and a default is not a simple matter and only starts a process and these are for large amounts of debt.
Did they just stop payments or did they give title back to their lenders? Were there some loan guarantees in place or other collateral that will be called upon? Are the lender's going to foreclose? If so, will there be law suits against these major players for losses incurred and then what will be the impact on their reputations and credit worthiness and on the overall RE market? It gets complicated but these issues are most important and relevant and will really tell us the rest of the story and the true impact of these events (and we generally do not hear much about these details and how they get resolved).
A really great article! I see that no one is held accountable for anything any more. Broken laws, bank failure, outright theft, killing in self-defense, lying to the American people, more lying to the American people, leaving people on the tarmac in a military blunder of gigantic proportions and being (proud) of it? We used to live in a place where every one is held accountable for their mistakes. Now we kill, lie, steal, attack, destroy, give money to foreign governments and no one is responsible. Getting whacked may be the least of our worries! Just sayin'
“Killing in self-defense”? You think there’s a problem with that? Self-defense is one time that killing is absolutely correct.
you said "A recession in the housing market would make it a lot easier for people to keep a roof over their heads." How does that work for folks that are already in a house ... especially for those that bought a house in the last 5 years (or worse yet, in the past 5 months). A recession and the related drawback in housing prices gives home owners less equity, and may imperil their jobs, causing a world of financial hurt when they are forced to sell their house for a low less than they paid for it.
Hey Skip. That is called capitalism. I am certain that every American that is a homeowner has a nice reserve I would think about $50,000 for the average house would be sufficient. When they get laid off or their house cruise down in value, they can use the reserve they possess to keep themselves solvent. Problem solved. By the way, if you don’t have that reserve, you should not be a homeowner.
A recession may make housing more affordable, if you still have a job.
And as Bill has pointed out numerous times, these ridiculously-low interest rates and faux money have greatly undermined the practice of “due diligence” by private businesses and government. I just read a Town and Country magazine article about JPMorgan Chase paying a young, fairly-recent Wharton School grad $175M for a service that the venerable bank now alleges is a scam. (Another higher-ed scandal; this time not involving Hollywood stars.)
So are we and our children ready for a recession . . . or a depression?
How to prepare?
I was taught to prepare for hard times by having a supply of basic, basic foods for 12-24 months ahead (wheat and a simple grinder, sugar, salt, lots of healthy oils and fats, favorite spices, etc. A few hundred dollars worth stored in cool, dark places.) Avoid debt like the plague, and try to own a home that we could afford without mortgage. A cash reserve enough for several months or a year, and where possible fuel. Grow as much of our own food as a family can where they live.
Did I always have all of that? Take a guess . . . but we always have had much of it.
It's the best and cheapest insurance I have ever had.
The only default I've ever had the pleasure of causing was directed at a small local bank. The apartment building was purchased with 5 year financing at 7% interest. Within commercial financing one is required to seek a new loan every 5 years. When the time came it was 2007 there was no financing from this bank or any other. To the market the building was for all intents and purposes of no value. My solution in the borrower friendly State of PA was to continue to collect the rent and pay the note and ignore the lenders demands to pay the note in full. Their response was to file a foreclosure action prompting me to stop paying the loan, taxes, water and gas bills. Philadelphia owns both the water and gas untiles and will not shut of either it the building is occupied. Both bills become municipal liens on the deed. Philadelphia is very slow to foreclose on delinquent taxes sometimes taking up to 5 years.
With the slightest adjustments the process of foreclosure can be stalled for quite some time, the courts were clogged with all manner of issues.
In the end the lender had a change of heart providing 6% financing for an additional 5 years. Just long enough for George Bush to bail out the lenders who caused the RE bubble in the first place.
I'm not totally reckless all monies collected were directed into a savings account. The good thing about Philly, they will wave late fees and penalties on delinquent accounts including RE taxes in some cases.
great read and perspective.
Not everyone has a $50k cash reserve after buying a house. I now I didn't after my first house. and my second, and my third (where I lost $75k on what was a $250K house until it wasn't. But I rented for a couple of years, built bak up enough cash to buy my next house, and was lucky enough from that point forward to come out even or ahead on future homes.
Mr. market is about to raise his unforgiving head.
Bill wrote:
"Risks increase with time. So, normally, the interest rate you pay when you borrow for a long time is higher than for a short-term loan. And when the two are reversed, it is a signal that something is out-of-whack."
I thought at first he was talking about what I saw a few months ago. On a mortgage broker's website, that was quoting residential mortgage prices from different big banks up here in Canada. If you look closely, mortgage rates for variable mortgages are more expensive than fixed long term mortgages. Just the opposite of what you think they should be. Check this out in your own area.
And then I saw he was talking about the US Treasury Yield curve. And not fixed vs variable residential mortgage rates.
Coincidence?
No one except elders believes me.
The use of borrowed money has a cost. If you are a market guru too bad, LaLa land is gone. Reality is setting in. Live with it. Money costs money! Be quiet if you want to uphold your reputation and learn from this experience, shut up and learn. We all hope the disaster will be livable.
Exactly! Why is this even a blip or worth a mention? Still a lie!! Just sayin'
Reporter is not held responsible. i.e.
I'm confused. Is Bill Bonner's daily posts only for paid subscribers or is it public and can be shared freely? There are conflicting messages at the end of today's post.
Daily posts by Bill are public. It's the special posts by Dan Denning, Tom Dyson and Joel Bowman that give out specific financial information that are the paid part. Though even those gentlemen sometimes post Public writings as well.
I believe this to be true.